Compounded Interest

Question

Jack has $500 to invest. The bank offers an interest rate of 6% compounded annually. How much money will Jack have after 1 year?

Answer 1

the underlying formula that you want to use here for compound interest is

A = P(1 + r/n)^nt

for this scenario that means taking

A = 500(1 + 0.06/1)^(1*1)

A = 500(1.06)

A = 530

meaning that after 1 year in this situation, Jack will have $530 in his account

Answer 2

Since the amount, compounded ever year, is in only one year, it is not compounded.

 

A = 500(1 + 0.06)